As you age, it’s critical to start preparing for everything that the future may hold. You never know whether an accident can render you unable to work or whether an illness can make it difficult to take care of your basic needs when you’re older.
While no one likes thinking about these situations, it’s always best to take precautions and have a plan in place for any potential outcome.
The first part of your plan should be investing in the right insurance type for your needs.
Those over the age of 50 have an array of insurance policies types to choose from to help with care needs; the most common ones are long term care and long term disability insurance.
Which one is the better choice for you? Which one can better ease some of the financial burdens that come with illness and disability? In the battle of long term disability vs. long term care insurance, which one should you choose?
Long term disability insurance in a nutshell
Long term disability (LTD) insurance is designed to offer financial assistance to people who cannot return to work due to an unexpected illness or injury. It’s available to employed individuals of all ages and aims to replace lost income due to permanent disability.
It works like any other insurance policy — you’ll pay monthly premiums, and, in return, your insurance carrier will pay you benefits if you sustain an injury or illness that prevents you from going back to work for longer than three months.
Some employers offer short term disability insurance to their employees (typically lasting up to 90 days), but depending on your condition, it might not be enough.
In most instances, long term disability insurance will pay you tax-free benefits equaling 60% to 80% of your income over any period – from one year to the beginning of your retirement or until the insurer is deceased. Depending on your chosen insurance company, you might even receive lost income replacement if your disability forces you to take a lower-paying job.
An any-occupation LTD policy will offer coverage to those who are unable to work in a job suitable for their age, education, and experience. If you can still work in a similar job, even if it’s a lower-paying one, you will not receive coverage.
An own-occupation LTD policy will offer coverage to those who are unable to fulfill the duties and responsibilities of their current occupation, even if they can still work in another field.
Who is long-term disability insurance intended for?
As mentioned, long-term disability insurance is for anyone who has an income, bills to pay, people to care for, and isn’t independently wealthy. About half of all people with a disability are over the age of 65, but about half are of working age, meaning it’s never too early to start researching this type of insurance policy.
As a general rule of thumb, it’s a good idea to find a suitable LTD policy as soon as you start working, especially if you are single or a sole provider in the family. Since it provides coverage for a significant part of your lost wages, it could help you and your family maintain financial stability if you can’t keep working. And if you’re on your own with no one to help you out financially, it can help you maintain your independence.
However, keep in mind that LTD premiums can be high, and these policies don’t substitute your primary health insurance – you’ll need to pay premiums on both your primary health insurance and LTD. Additionally, you might not qualify for long term disability if you already have a disability or suffer from a chronic illness. Long-term disability insurance is meant to replace your lost income. It’s not meant to pay for your health care, so don’t get rid of your health insurance if you get long term disability insurance. They’re two very different things, with two very different purposes.
Depending on your LTD policy, you could receive coverage spanning 2, 5, 10 years, or until your retirement (the age of 65/67). And, once you retire, you can apply for Social Security Disability Insurance (SSDI).
What does it cover?
Long term disability insurance offers coverage for an array of illnesses and conditions. Most commonly, employees seek to use the benefits from LTD policy if they have:
- Long term injuries – fractures, sprains, and strains;
- Mental health conditions;
- Musculoskeletal disorders;
- Crohn’s disease.
This list is far from exhaustive, but your LTD coverage will depend entirely on the policy you select.
Long term care insurance in a nutshell
Although they have similar-sounding names, long term disability and long term care (LTC) insurance policies have little in common.
Whereas LTD is designed to substitute a part of your income if you become unable to work, LTC aims to cover some of the costs of nursing home care, home health care, or adult daycare for beneficiaries who have difficulties taking care of themselves. It eases financial burdens related to not being able to take care of your activities of daily living like eating, bathing, dressing, and using the bathroom without someone’s help.
Unfortunately, over 70% of those over the age of 65 need some form of long term care and support. In most instances, mainly because professional long-term care can quickly become expensive, friends and family members provide this support without any sort of pay or compensation. However, with the right long term care insurance policy, you can ensure that you get the care you need without risking your finances and putting unnecessary pressure on your loved ones.
As a general rule of thumb, long term care insurance has greater flexibility than some of the more common government assistance programs such as Medicaid (even with all of the Medicaid supplement plans). It offers the freedom of choice over your care providers, protects your assets, and provides you with essential services without draining your savings accounts.
Who is long term care insurance for?
Long term care insurance is for anyone who is interested in planning for their care as they get older and think about not being able to take care of themselves like they once did, for things related to performing two or more of the basic daily activities:
- Transferring (getting in and out of bed);
- Using the toilet;
- Personal hygiene
- Getting dressed.
It’s basically designed for individuals who will experience physical and/or cognitive illnesses and disabilities who require either skilled or personal care.
Skilled care is provided by registered nurses or medical professionals on a doctor’s order in a nursing home or medical facility. Personal (also known as custodial) care isn’t as intense and doesn’t require a medical professional. It can be provided at their residence, adult daycare, or other settings.
According to American Association for long term Care Insurance, most people start planning long-term care between the ages of 52 and 64. As a general rule of thumb, you’ll have lower premiums on LTC if you join a policy when you’re still healthy and active. If you wait too long to get long term care insurance, you might not qualify for it, especially if your health has already declined.
What does it cover?
Long term care insurance has comprehensive coverage options, helping to minimize the costs of:
- Skilled nursing care;
- Personal care (bathing, eating, etc.);
- Rehabilitation therapy;
- Hospice care;
- Respite care;
- Nursing home care;
- Assisted living facility care;
- Home care;
- Alzheimer’s special facility care.
You’ll need to carefully examine your LTC insurance policy to determine whether it offers the type of coverage that would best suit your needs. Ideally, you’ll want to consult your physician and insurance agent about your options long before you require LTC insurance. Maybe long term acute care insurance will suit you better.
The costs of long term disability insurance
LTD insurance costs can vary significantly from state to state and from one insurance provider to another. You’ll need to research the insurance carriers and different plans to find out the exact costs of your monthly premiums. However, be prepared to pay anywhere between 1% and 3% of your annual salary for your LTD policy. Don’t forget there is a waiting period for a disability insurance policy.
As with any insurance type, there are many factors that will impact your monthly LTD premiums, including:
- The older you are, the more expensive your premium will be;
- Since women tend to file LTD claims more frequently than men, then pay higher premiums;
- Current health:
- Those with poorer health or a history of disabling health conditions tend to pay higher premiums;
- If you work in hazardous conditions, be prepared for higher monthly premiums;
- Benefit period:
- The longer you wish to receive your LTD benefits, the higher your premium will be.
Be sure to consult your insurance agent before you settle for an LTD policy. They can help you find the most affordable option for your needs.
The costs of long term care insurance
Annual premiums for LTC insurance can be high. Long term care insurance statistics show that average premiums can vary from $950 for single males of the age of 55 to $7,225 for single females of the age of 65.
However, considering that median annual long term care costs at a nursing home, for example, can go over \$105,852, it becomes quite clear why the price of LTC insurance is so steep.
Of course, your LTC premium will depend on an array of factors, just like LTD premiums, including your age, gender, occupation, health, and more. The younger and healthier you are, the lower your LTC premiums will be. Moreover, if you join a plan as a part of a couple, you could get discount, lowering the price even further.
As always, consult an insurance agent before you make your decision on a long term care insurance carrier.
Are long term disability and long term care insurance worth it?
Whether LTD and LTC insurance policies are worth it is difficult to determine. You should still know reasons for long term care insurance rejection. On the one hand, everyone hopes to reach and enjoy their golden years without any complications. On the other, you never know what the future may hold. An accident, illness, or disability can strike at any moment and take away your independence. While it’s not a pleasant thought, it’s always a possibility.
Unfortunately, 62.1% of all bankruptcies in the US are caused by medical issues. Long term disability and long term care can quickly become an overwhelming financial burden that not everyone can carry. If you want to protect your income, savings, and other financial assets, LTD and LTC insurance can be well worth it.
Things to consider before applying for long term disability vs. long term care insurance
Paying for both long term disability and long term care insurance plans can put a significant dent in your budget. If you want to have a safety net for all the potential outcomes and avoid wasting your money for decades on insurance plans you might not even need; you’ll want to consider a few things carefully before you apply for LTD and/or LTC:
- The time you have before you retire:
LTD covers lost wages and only lasts until retirement. If you’re retiring in a couple of years, you don’t have to start paying harsh premiums for it. On the other hand, LTC is rarely needed before you hit your 70s, so start thinking about it in your mid-50s.
- Current health:
If you have pre-existing conditions or a history of chronic illnesses, you might not qualify for either LTD or LTC (or you’ll get significantly higher premiums). Apply for these plans when you’re generally healthy and active.
- Financial situation:
LTD and LTC premiums can cost you thousands of dollars a year, so you’ll need to carefully consider your current financial situation before applying for a plan. If you believe you might have to cancel your insurance before you have to use it, there’s no point in wasting your money.
Long term disability and long term care insurance can provide you with a safety net to fall back on when your health starts declining. Consult your insurance agent to find the best policy for your needs, and protect your future, whatever it may hold.
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